Main Content

Blog Top

Fun Ways to Teach Kids About Compound Interest

AddToAny buttons

Fun Ways to Teach Kids About Compound Interest

Body

The “Time Value of Money” is one of the most important concepts in personal finance, and one kids should learn about early. However, it’s a concept that can be difficult to explain in a way younger folks can understand.

The Center for Financial Empowerment, the nonprofit founded by SCE Credit Union, uses a visual demonstration to help teens understand this important concept. We’ve shared our favorite below, called Time Value of Money Magic, which uses colored jelly beans and an interactive graph to show how money can magically grow with interest.

What you’ll need

  • Large bag of jelly beans with at least eight different colors (or other colored candies or marbles)
  • Containers to hold jelly beans (cups or storage bags)
  • 2 clear containers (such as bowls or jars)

Prepare for the demonstration

Using the colors of the jelly beans, label eight storage bags or cups as follows:

  • White – Principal – 20 jelly beans
  • Black – Year 1 – 1 jelly bean
  • Purple – Year 5 – 3 jelly beans
  • Yellow – Year 10 – 6 jelly beans
  • Green – Year 20 – 11 jelly beans
  • Orange – Year 30 – 22 jelly beans
  • Red – Year 40 – 43 jelly beans
  • Pink – Year 50 – 85 jelly beans

Label one clear container “Financial Institution (Earns Interest)”, and label the other clear container “Other (No Interest).”

Demonstration

Demonstration1
1 Principal - 20 jelly beans

Place 10 jelly beans in each clear container. Explain each jelly bean represents $10, therefore this represents $100 initial savings amount in each container.

2 Financial Institution (Earns Interest) and Other (No Interest)

Explain what each clear container represents (ie., Interest-Earning Financial Institution vs. Non-Interest Other). Set the Other container aside for now since it’s not earning interest. We’ll refer to it at the end of the demonstration.

Engage your child by having them add the preportioned jelly beans as follows. Use the chart below to explain the interest amounts each jelly bean represents.

Demonstration2
3 Year 1 - 1 jelly bean

Add the single jelly bean to the Financial Institution container. Explain this jelly bean represents $7 in interest earned over the first year, so the saving balance is now $107. Emphasize the owner of this savings account has just earned $7 he/she didn’t have to work for!

4 Year 5 - 3 jelly beans

Add the three jelly beans to the Financial Institution container. These jelly beans represent $33.26 earned in interest. The savings balance is now $140.26.

5 Keep going

Continue adding the jelly beans preportioned in each cup, explaining the amount of interest they represent according to the chart. Point out how the interest amounts keep getting larger because the overall savings balance is growing.

6 Year 50 - 85 jelly beans

Explain the savings would be worth $2,945.70 – and all they had to put in was $100. The rest was interest!

7 Beginning savings

Have your child look for the colored jelly beans representing the beginning savings amount. Explain this small amount represents the only money actually provided by the saver. All the other colored jelly beans represent free money in the form of interest earned.

8 Other (No Interest)

Bring out the "Other" container representing money saved in a way that didn’t earn interest. Show the difference compound interest makes.

Chart

Chart
Label Jelly Bean Color # of Jelly Beans Savings Balance Interest Earned
Initial Savings White 10 $100 0
Year 1 Black 1 $107 $7
Year 5 Purple 3 $140.26 $33.26
Year 10 Yellow 6 $196.72 $56.46
Year 20 Green 11 $386.97 $111.07
Year 30 Orange 22 $761.23 $218.48
Year 40 Red 43 $1,497.45 $429.79
Year 50 Pink 85 $2,945.70 $845.46

Graph

Using visual demonstrations like this one makes learning about money interesting and fun. Even more so if your leaners can eat the supplies afterward!

Help us empower the next generation for financial success!
The Center for Financial Empowerment is a 501c3 nonprofit organization whose mission is to empower disadvantaged youth through financial literacy education. Find out more about our work at Center4FE.org.